6.10 p.m.

Earl Howe: My Lords, we heard in this debate, as I felt sure that we would, many perceptive and learned contributions which demonstrated once again the wealth of wisdom and expertise on this subject which exists in your Lordships' House. Before answering some of the points raised, I should like to add my own warm congratulations to my noble friend Lord Yarborough on his maiden speech. It was well-informed, lucid and highly relevant to the problems of the agricultural tenanted sector. I am delighted that he chose this occasion on which to make his maiden speech and I hope that in years to come he will have warm feelings not only about the debate, but also about the Bill and its effects. I look forward to hearing many more contributions from my noble friend in the future.

I very much welcome the support for the aims of the Bill expressed by so many speakers in today's debate. Many noble Lords made the case for the Bill more eloquently than I could do. We worked hard to produce a Bill along the lines that the industry wants. I believe that we succeeded. I therefore confess to a certain amount of disappointment that noble Lords on the Front Bench opposite were not able to join in the wide degree of support for the Bill. I suspect that they may be prisoners of policies developed in the past by others in their party--policies which have not yet been modernised to take account of the current situation on the ground or of the current consensus in the industry on the need for change. I feel sure that noble Lords present today will know from their regular day-to-day contacts with people involved in agriculture that this reform is seen as a high priority. I hope that in later stages we can satisfy noble Lords present, including noble Lords opposite, that we have got the details right.

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Although I referred a moment ago to "consensus", I should acknowledge--as a number of noble Lords mentioned, in particular the noble Lords, Lord Cledwyn, Lord Elis-Thomas, Lord Prys-Davies and Lord Geraint--that one industry body opposes the Bill and continues to advocate a statutory minimum term. I refer to the Farmers' Union of Wales. I should like to refer to one statistic in relation to tenancies in Wales. Every year the Central Association of Agricultural Valuers carries out a survey of tenanted farms in England and Wales. That survey, regarded as authoritative, covers not all, but a high proportion of new lettings each year. From the latest survey covering 1993 one can see how many new lettings have taken place as full tenancies, succession tenancies, short-term lets and so forth. I am therefore able to tell your Lordships how many unqualified, fresh lettings the survey found in Wales last year which were granted to tenants unconnected with the estate. In the whole of Wales, north and south, the survey found precisely one such tenancy. That may be an under-estimate because the CAAV survey does not cover every possible letting. But it is astonishing that an organisation whose members include many existing tenants--who will not be affected by the Bill--can continue to advocate a 15-year minimum term in these circumstances. It is surely clear that continuation of lifetime security of tenure or the imposition of a statutory minimum term would simply perpetuate that state of affairs. It would mean slamming the door shut on prospective tenants. If we followed the line advocated by the FUW, then they may as well start advising their younger members to buy tickets for the national lottery because they probably stand more chance of winning the jackpot than of obtaining a full agricultural tenancy.

I fully accept that the Bill will not solve all the problems of new entrants at a stroke. But it will at least open the door instead of slamming it shut. As the noble Lord, Lord Carter, mentioned, this summer the Royal Institution of Chartered Surveyors carried out some research among its members on the extent to which they expected new farms and land to come forward for letting if our proposed reforms are enacted. The results showed that we could expect nearly 900,000 acres or 360,000 hectares of land to be let through chartered surveyors under farm business tenancies. That would increase the area of let land by around 10 per cent. of its current level.

The noble Lord, Lord Carter, claimed that the RICS survey showed that under the Bill most farms would be let for five-year terms. In fact, that is not what the survey said. As the noble Lord, Lord Northbourne, pointed out, the figures were: for five-year terms, 86 farms; for 10 years, 64 farms, and over 10 years, 53 farms. The overall proportion, therefore, was 56 per cent. to be let for 10 years or longer; that is to say, 56 per cent. of equipped farms are likely to come forward for letting.

Lord Carter: My Lords, I am extremely grateful to the noble Earl for giving way. Will he be kind enough to give the House the number of bare land units to be let for five years to enable us to compare the total? I can save him the trouble. If we add the whole lot together--

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equipped farms and bare land units--we obtain a total of 803 units or farms, of which 453 would be let for five years, and that is more than 50 per cent. of the total. It depends whether one takes the equipped farms or the bare land units.

Earl Howe: My Lords, I am grateful to the noble Lord. My point still stands. While I accept what he says, it is the equipped farms which reveal more tellingly the extent of the intentions in the market.

My noble friend Lord Courtown expressed doubts in relation to the reliability of the RICS survey. I am sorry that he is not wholly convinced by it when he himself is a member of that institution. However, I am grateful for his support on all the other aspects of the Bill.

The noble Lord, Lord Prys-Davies, asked how many extra acres were likely to be available for letting over the next five years. The RICS survey was based on what is likely to happen within two years and we must take account of that. It found nearly 1 million acres of new land, which is a significant amount. Over five years the figure may well be more than that. Indeed, some owner occupiers whose views were not canvassed by the survey may be persuaded to let their land, and that would boost the figure even further.

The noble Lord also commented on the opinion expressed by Grant Thornton that tax benefits of contract farming will outweigh the benefits of the Bill. One must take note of that; it is a respected firm. But Grant Thornton is only one firm, whereas the RICS canvas all surveyors' firms. The majority of surveyors and industry organisations, and particularly young farmers who have a major interest in the whole question, are all more confident about the likelihood of success in stimulating lettings. One must be encouraged by that.

We must constantly bear in mind that a high proportion of current lettings are for terms of one to two years under Gladstone v. Bower tenancies. If we do so, we can then see how the Bill will give many existing tenants the chance of obtaining a more secure tenancy as well as opening up new opportunities. If there is a knock-down argument to the criticisms voiced by the Benches opposite, it is surely that one.

Some people have claimed, as did the noble Lord, Lord Cledwyn, that banks may not be inclined to lend money to tenants on fixed term tenancies. There are two answers to that point. First, it is likely that many new tenancies will be for 10 years or more if we are to trust the indicators. Secondly, I contend--for what it is worth I speak as a former banker--that lenders will not look just at the length of the tenancies. They will look also at the assets of the business and on the ability of the borrower. The latter factor is of course a subjective judgment; but where the tenant borrowed money and invested in an improvement with his landlord's consent, the Bill guarantees him full compensation at the end of the tenancy for the value of the improvement at that time. That is an important factor which I am sure banks will take into account.

The noble Lord, Lord Cledwyn, questioned whether the Bill would, in practice, halt the decline in lettings. I shall simply point out an analogy to him. The revival in the residential rented sector followed a long decline.

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After the 1988 Housing Act brought in market rents and short-hold tenancies, the number of households renting from private landlords increased by 10 per cent. in the following five years.

There was, apart from the RICS survey to which I have just referred, a CLA survey of landowners in 1989 which suggested that freedom to choose the length of a tenancy could lead to a 33 per cent. increase in new tenancies over a five-year period. That, again, is a helpful pointer. I fully appreciate the sensitivities which were referred to by the noble Lord but I can assure him that our aim, too, is to encourage successful tenanted farming.

My noble friend Lord Stanley predicted that under the Government's proposals existing tenants would take on more land rather than the new entrants. It is something of a counsel of despair to say that we should take no action if existing tenants might benefit the most. We want to benefit existing tenants as well as new entrants. Both of them need more opportunities. Besides, the National Federation of Young Farmers fully supports the Bill, so it clearly believes that its members will benefit. I share that belief.

The noble Lord, Lord Northbourne, referred to the provisions concerning arbitration on compensation. I believe that the noble Lord's points on compensation are covered in the Bill. For example, an arbitrator will be able to take account of the circumstances of the landlord--for instance, whether he can afford to pay any eventual compensation--when deciding whether to give approval for a tenant to make an improvement that the landlord might not necessarily want. I am sure that we can deal with that kind of detail at later stages of our debates.

The noble Lord also expressed his concerns on housing for tenants. Under the terms of the Bill many young people may be more secure than they are at the moment. As we have heard, the recent RICS survey showed that more than half the lettings of equipped farms were likely to be for 10 years or more. We should compare that with the current situation where 75 per cent. of new lettings are for terms of fewer than five years. In future, tenants will be able to make their own judgments when taking on a tenancy. They will know the term date from the start, and with more tenancies available they should have fewer problems finding a new tenancy to take on. I ask the party opposite in particular to reflect on that point before pursuing their reservations about the Bill to subsequent stages.

The noble Lord, Lord Geraint, said that the Government should encourage county councils not to sell their county council smallholdings. The legal position, as I am sure he will know, is that it would be a decision of whatever successor authority took over responsibility from the county council--Dyfed in the case to which the noble Lord referred. I am a little surprised to hear a Liberal Democrat spokesman asking central government to put their own advice above local democratic decisions. As regards smallholdings generally, our reforms would free up the market and make it possible for tenants to move on from county farms instead of staying until retirement. As the noble Lord will know, that is the norm at present.

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The noble Lord, Lord Elis-Thomas, mentioned the importance of diversification. I can assure him that it is indeed an aim of the Bill to allow more flexibility for tenant farmers to diversify than they currently have, subject to whatever their tenancy agreements allow. I fully agree with him that that will contribute to the rural economy and help to preserve what I think the noble Lord called "security of income". I am very much in sympathy with the sentiments he expressed.

The noble Lord, Lord Elis-Thomas, emphasised the importance of environmental sustainability and suggested that there should be specific reference in the Bill to promoting environmental benefits. Landlords will have the option of drawing up tenancy agreements to further environmental aims, unlike the situation under the 1986 Act. The fact is that when it comes to mandatory measures it is difficult for the Government to make prescriptions. It is even more difficult for the Government to enforce those prescriptions. But one thing is clear: environmental gains and sustainability will not be promoted by a perpetuation of Gladstone v. Bower-type agreements, as we have at the moment.

The noble Viscount, Lord Hampden, expressed some doubt as to whether the Bill will help the cause of the environment. I am pleased that the noble Viscount concluded that, overall, he probably welcomed the Bill. On his point concerning the regard paid by second and third generation tenants for the environment, I agree that we would not wish to discourage that in any way. But, equally, we do not necessarily get the best results by having, as it were, a closed shop with no new faces coming into the industry. That is one of the reasons why we feel that the balance should be adjusted.

My noble friend Lord Addison and the noble Lord, Lord Gallacher, asked whether the Government could not issue advice or a code of practice on conservation targets or practices. I need time to reflect on what the coverage of such advice would be and who the intended recipients might be. I can say to them that the Bill will allow new tenancies to incorporate more in the way of environmental activities. That is something we can only welcome.

The noble Lord, Lord Prys-Davies, said that tenants should have the right to renew the tenancy at the end of the agreed term, as tenants do under the Landlord and Tenant Act 1954. The simple answer to that point is that a right to renew would defeat the purpose of fixed-term tenancies. Without freedom of contract and without fixed terms, landlords will simply not offer land to rent. Besides, under the Landlord and Tenant Act 1954, the parties can simply apply to the courts for permission to opt out of the right to renewal, so that right is not always available to commercial tenants. If the tenant is good, the landlord is likely to want to renew. That, I suggest, is a much better basis for a continuing and healthy relationship between the parties.

My noble friend Lord Mountgarret suggested that livestock quotas could be passed to the landlord at the end of the tenancy. Livestock quotas, as he will know, do not remain attached to the holding because they belong to producers. While there are those who regret that fact, it is not something over which the Government

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have discretion. It is laid down in EC regulations. My noble friend also asked in particular about Clause 23(3), which refers to compensation at the end of successive tenancies. I can understand his concern but I think it is based on a misunderstanding. The clause gives an option for the landlord and tenant to settle up on claims for compensation at the end of the first tenancy. Where they do so, the tenants cannot claim a second amount of compensation on the same items at the end of the next tenancy. I hope that that will reassure my noble friend.

My noble friend Lord Peel expressed a worry about the provisions in the Bill for compensation for intangible improvements. I welcome my noble friend's support for the Bill and all the constructive remarks that he made. As to his concerns about compensation, the industry agreement recognises that tenants should receive compensation for intangible improvements that they have secured for the holding. If a tenant has invested time and money in securing a planning permission which adds value to the holding, there is no reason why, provided he has the landlord's consent, he should not be compensated. But doubtless this is a matter which, again, we can discuss further at the Committee stage.

A number of noble Lords, including, notably, my noble friend Lord Stanley, have wondered about the effectiveness of the proposed reforms without fiscal changes. When I have the privilege of standing at the Dispatch Box I speak for the Government, but this is one occasion when I have to say that this particular matter is one for my right honourable friend the Chancellor, although, as has been said, he may not see the record of this debate before he gives his Budget speech tomorrow. But we should note that the prescription which is apparently on offer from the Benches opposite would be to increase inheritance tax on owner-occupied land. I am not sure that many noble Lords or many farmers would find that a particularly appealing proposition.